7 Tips for Parents Buying the Best First Car for Their Teens
When parents assist teens in purchasing their first car, they provide an opportunity for newfound freedom and responsibility. Teens will no longer need to rely on others for rides or wait to use the family vehicle. At the same time, teaching financial responsibility through monthly auto loan payments can be a valuable lesson. If you're a parent helping your teen navigate the many options to find the best first car and car loan, these tips may come in handy.
Expert Advice for Choosing the Best First Car for Your Teen
When searching for the best first car for your new driver, its important to consider the differences between purchasing a new versus pre-owned vehicle. Instead of immediately focusing on sleek, shiny models, families can benefit from conducting careful research before their car search even begins. Here’s a step-by-step checklist to guide you in choosing the best car for your teen.
1. Set a Realistic Budget
There are several ways to determine a realistic car budget that works for both you and your teenager. Some people calculate their entire monthly budget and allot 10-20 percent for auto expenses. This typically includes the car loan payment, fuel, insurance, and maintenance. Another tried-and-true method involves the 20/4/10 new car rule. Buyers put 20 percent of the vehicle’s value down when applying for a loan. The payments usually hover around 10 percent of someone’s monthly income over a 4-year period.
While these are reasonable methods for deciding on a car budget, it’s important to keep in mind how you and your teen plan to pay for the vehicle. If your child has a job, they may be able to cover a percentage of the payment, insurance, or other maintenance expenses. Having these discussions ahead of time will prepare your teen for what they can expect to contribute.
Expert Tip: To get an approximate monthly loan payment based on your potential down payment and loan amount, explore Allegiance’s car loan calculator.
2. Understand Your Loan Options
Car buyers have a wide range of auto loan options available. Some are better than others. You’ll quickly discover that dealerships are quick to extend credit. In many cases, they have lenders on speed dial that allow you to drive away in a new or used car. Unfortunately, the rates tend to be higher than you might otherwise qualify for, and hidden fees are usually attached.
Rather than have a car salesperson persuade you to sign on the dotted line, consider getting pre-approved for an auto loan from your local trusted credit union. Families can take advantage of transparent loan terms, typically lower interest rates, an understanding of your maximum loan amount before you start shopping, and increased negotiating power allowing you to focus on the car price, not the financing terms.
Expert Tip: Parents can co-sign an auto loan with their child, provided the child is at least 18 years old, helping them establish a positive credit history.
3. Prioritize Safety Features
Today’s vehicles come with an abundance of safety features that are ideal for your drivers. Among the most important are anti-lock brakes (ABS), airbags and seat belts. When purchasing a vehicle for a relatively inexperienced driver, it may be prudent to strongly consider paying a little more for options such as the following.
- Forward Collision Warning Systems
- Blind Spot Detection
- Backup Cameras
- Lane Departure Warnings
- Traction and Stability Control
- Tire Pressure Monitoring
Expert Tip: Consider checking car safety ratings at the National Highway Traffic Safety Administration platform.
4. Choose the Right Size and Style
Teens may be enamored with the look and feel of a new ride. But that does not necessarily mean the vehicle is well suited for everyday use. Consider factors such as commuter distance and whether your teen plans to transport sports equipment, go camping, or even take a road trip over summer break. Another size and style issue involves fuel efficiency. Compact cars and hybrids typically get more miles to the gallon than larger vehicles and luxury automobiles.
Expert Tip: Purchasing a car with better fuel efficiency can really add up! Show them the differences between a hybrid, sedan, and SUV in this comparison.
5. Research Insurance Costs
To legally operate a motor vehicle in Oklahoma, drivers must carry a minimum of $25,000 in bodily injury coverage per person, $50,000 in bodily injury coverage per accident, and $25,000 in property damage coverage per accident. Known as 25/50/25 minimum liability limits, people with car loans are required to carry “full coverage” to ensure the auto loan can be paid in the event the vehicle is stolen or totaled in an accident. Weigh auto insurance coverage from multiple sources to get the best rate for your needs.
Expert Tip: Ask about GAP Coverage when securing your car loan. This optional coverage helps pay off your auto loan if your car is totaled or stolen and you owe more than the car’s depreciated value.
6. Test Drive and Inspect the Car
Take more than a quick spin around the block when test-driving a vehicle. To get a good sense of how it handles, drive it on a suburban road that requires stops and starts. Then, take it out on the highway to experience how it performs at a higher speed. If you have an opportunity to bring it to a nearby garage for a quick inspection, a mechanic can identify issues that may not be apparent. You could also bring along someone with automotive experience to look it over on the lot.
Expert Tip: One of the reasons for test driving a vehicle on the highway involves the so-called “death rattle.” Vehicles that are out of alignment, have been in wrecks, or have been modified may shake at 50 mph or higher.
7. Teach Financial Responsibility
Collaborating with your teen to purchase a vehicle can be an invaluable learning opportunity. This is a great opportunity to guide your teen through the process of researching suitable cars, understanding insurance options, and applying for a car loan. Take the time to explain key loan terms, including interest rates, repayment schedules, processing fees, and more. It’s also beneficial to discuss the role of credit scores in securing the best interest rates.
Expert Tip: Take the time to talk about making on-time payments on auto loans. Teens who are consistent will build a healthy repayment history can build and improve their credit score.
8. Establish Ground Rules
Young people too often learn hard lessons because they make mistakes with money. Missing car loan payments, overspending, and other issues can negatively affect their financial futures. As parents, it’s essential to establish firm ground rules surrounding the vehicle. Just because a parent helps their teen get a car loan doesn’t mean they’re free to make costly mistakes.
Expert Tip: Consider establishing a monthly budget with your teen. Have a certain amount of their earnings directly deposited into a bank account. Set up direct car loan payments to ensure they are made on time.
Allegiance Can Help You Buy Your Teens First Car
At Allegiance, we understand how important it is to make the right financial decisions when helping your teen purchase their first car. Whether you're looking for a pre-approved auto loan with competitive rates, or need advice on budgeting and loan terms, our team is here to guide you every step of the way. With personalized service, lower interest rates, and a range of loan options, Allegiance can help ensure a smooth and affordable car-buying experience for you and your teen. Let us help you make this milestone a positive and financially sound step for your young driver’s future.